How’s the market? It’s the question Realtors® get asked more often than any other question.
Why is that? Well, because unlike doctors, lawyers and accountants, Realtors® are one of the few professions that are pro-active in nature:
- You call a doctor, usually when you are sick
- You call a lawyer, usually when you are being sued
- You call your accountant, when you want to ask if that deduction you took is actually a “red flag” to the IRS.
- THEN, if it IS a red flag, then you call your lawyer, then your doctor as you become ill at the thought of the upcoming audit.
However, Realtors® are folks you call to initiate something: A purchase of a home. A sale of a home. Most of those times, it’s something positive.
As a result, people’s natural curiosity compels them to invariably ask the “how’s the market?” question. It’s rare that people go for a week without thinking about a home or their home: fixing it up, buying up, scaling down after the kids go to college, getting away from it all, investing in some foreclosures, or just wouldn’t it be great to own a home on a beach in the Caribbean and not have to fight the snow?!?!
So, how do I answer that question? It’s always a great time to buy and sell real estate!
Really?!?! Yes. Really.
Why? Well, at the risk of sounding like the old T-Mobile commercial where the “motivated Realtor®” is alternately saying “It’s a Buyer’s Market”, “It’s a Seller’s Market” and “Any closet is a walk-in closet if you try hard enough” (click here to view) , it really is a great time to buy or sell!
Really? Yeah. Really. Here’s why I am keen on real estate. And why I am keen on real estate in
- Lower home inventories – Crisis? Been there. Done that.
- Historically low interest rates – combined with an aggressive Fed
- Occupancy is at record and near-record lows in
So, let me expand on each of those.
Lower Home Inventories – Crisis? Been there. Done That!
What do lower inventories tell you intuitively?
It tells me that supply is lower than demand. And when supply is lower than demand, what happens to price? It goes up!
Well, below is a chart showing the national scene. You can see the preliminary number for February 2008 – the latest statistics available – show 9.6 months of inventory.
Just looking at this chart, you get a real sense of why there is panic: Months of Inventory (how long it would take to sell all the actively listed homes to sell if no more came on market) has more than doubled. Most of THAT change took place in the past 14 months.
Here are the Months of Inventory numbers from the National Association of Realtors®:
· 2005 – 4.5 Months of Inventory
· 2006 – 6.5 Months of Inventory
· 2007 – 8.9 Months of Inventory
· 2008 (February) – 9.6 Months of Inventory
Even to the casual observer in real estate, one can see the aggressive action by the Fed in January has appeared to start a downward trend of that line. The Fed has dropped the Fed Funds Rate from 5.25% a year ago to 2.25% in its last meeting. The market is pricing in another drop in the next meeting on May 9th.
Although it might have been a time of great anxiety a few months ago, for those strategic purchasers who were prepared, an opportunistic buying opportunity existed. And, despite the soft market, practitioners in the hardest hit areas tell me that “well-priced homes move quickly”. The challenge – as with any market – is the person who acts emotionally as opposed to being armed with data often loses: loses out on opportunity, loses out on bailing out of a bad market.
So, what is the market saying: On a national basis, the market is leaning toward a buyer’s market. So, how is
For those of you who have worked with me in that past year, I have been saying that the Buyer’s Market is fading in
Yeah, I know, you don’t believe me. Well, I think most people trust me, but have a hard time believing something that flies in the face of what they hear on TV/Radio all day long. Most people tell me they think I sound like that commercial referenced earlier. However, the data is the data.
Let’s look at the same data for
First, you will note that the Months of Inventory is running around 6 months. Six months is the tipping point between being a Buyer’s Market (Months of Inventory over 6) and a Seller’s Market (Months of Inventory under 6).
As an FYI, I use a trailing 12-months average to calculate months of inventory. I use that to take out the fact that
Based on information from Metrolist, Inc. for the period February 2007 until February 2008.
Note: This representation is based in whole or in part on content supplied by Metrolist, Inc. Metrolist, Inc. does not guarantee nor is in any way responsible for its accuracy. Content maintained by Metrolist, Inc. may not reflect all real estate activity in the market.
The chart above shows that
You will note that there was an upward trend in
- People listing after the holidays
- And, newly confident sellers jumping into the market.
- 5,400 new listings came on market in February. In March, 1,800 of those came off market in some form (sold, under contract or withdrawn).
- The 5,400 represented at 31% increase in listings from the prior month.
From this data, I see an increasingly favorable environment for
This data is reinforced when taken in the context of my blog entry about the Case/Schiller Index drifting to a 20-year low (click here to view), a story that broke in late February. You will recall that
As I always say – as well as the hundreds of thousands of folks out there who practice real estate – all real estate is local. Here is how the local market is faring on a locale-by-locale basis as of April 4, 2008, looking back into the month of March.
6 Locale Active Listings 12 Months Sold Sold per Month (Avg) Months Inventory (MOI) MOI Chg from Prior Month Current Mkt State Under Contract Sales Trend Sales Trend Chg.% Arvada 517 1,430 119.2 4.3 (0.8) Seller's Market 210 Seller's Trend 76% Aurora 2,312 4,787 398.9 5.8 (0.6) Neutral Market 834 Seller's Trend 109% Boulder 122 300 25.0 4.9 0.6 Seller's Market 32 Seller's Trend 28% Broomfield 326 817 68.1 4.8 (0.4) Seller's Market 87 Seller's Trend 28% Castle Rock 1,040 1,392 116.0 9.0 (0.2) Buyer's Market 178 Seller's Trend 53% Denver 4,871 8,842 736.8 6.6 (0.3) Buyer's Market 1,556 Seller's Trend 111% Erie 178 319 26.6 6.7 (1.5) Buyer's Market 45 Seller's Trend 69% Golden 452 705 58.8 7.7 (2.7) Buyer's Market 85 Seller's Trend 45% Greenwood Village 133 161 13.4 9.9 (2.2) Buyer's Market 19 Seller's Trend 42% Highlands Ranch 502 1,032 86.0 5.8 0.1 Neutral Market 161 Seller's Trend 87% Lafayette 83 178 14.8 5.6 0.9 Neutral Market 22 Seller's Trend 48% Lakewood 561 1,396 116.3 4.8 (0.7) Seller's Market 168 Seller's Trend 44% Littleton 895 2,873 239.4 3.7 (0.4) Seller's Market 274 Seller's Trend 14% Louisville 23 109 9.1 2.5 (0.1) Seller's Market 19 Seller's Trend 109% Northglenn 180 413 34.4 5.2 (0.7) Seller's Market 76 Seller's Trend 121% Parker 856 1,589 132.4 6.5 0.1 Neutral Market 214 Seller's Trend 62% Superior 38 126 10.5 3.6 0.7 Seller's Market 12 Seller's Trend 14% Thornton 761 1,710 142.5 5.3 (0.5) Seller's Market 278 Seller's Trend 95% Westminster 618 1,303 108.6 5.7 (0.9) Neutral Market 176 Seller's Trend 62% Wheat Ridge 131 298 24.8 5.3 (1.6) Seller's Market 48 Seller's Trend 93% Total of Selected Towns & Locales 14,599 29,780 2,481.7 5.9 (0.5) Neutral Market 4,494 Seller's Trend 81% Total MetroList* 20,566 38,241 3,186.8 6.5 (0.6) Neutral Market 5,826 Seller's Trend 83% * Single Family Residences Only Chg from Prior Month (1,816) 115 10 (0.6) Seller's Trend 674 Seller's Trend 20.7% Note: This representation is based in whole or in part on content supplied by Metrolist, Inc. Metrolist, Inc. does not guarantee nor is in any way responsible for its accuracy. Content maintained by Metrolist, Inc. may not reflect all real estate activity in the market.
As you see above, the market is very specific, even on a community-by-community basis.
Historically Low Interest Rates – Combined with an Aggressive Fed
Not only is the movement of homes improving, but the macroeconomic environment is too.
One of the things that is amazing to me – even as busy as I have been – is why aren’t more people moving?!?!?! Rates are INCREDIBLE!!!!
The chart below shows the near term interest rates, which are running at about 5.75% nationally.
Immediately below is some research I found at the St. Louis Federal Reserve Bank’s website. The chart is an historical reflection for the years 1970 to the present. The shaded areas are when recessions occurred (two quarters of economic contraction). In most of the instances viewed, recessions have occurred when interest rates spike quickly and they pass when interest rates drop.
Given this history, it would appear reasonable that in today’s interest lowering environment that one would expect any recession would be mild – barring continued illiquidity in the market.
Just reflect on your own circumstances:
· Is a 30-year fixed mortgage of 5.75% too high?
· Is a 30-year fixed mortgage of 6.50% too high?
· Is a 30-year fixed mortgage of 8.00% too high?
Chances are you had a home loan interest rate that was higher than any of those in the past. So, isn’t now a better time to buy? You bet it is! It’s historically good. Just take a look at the 30-Year Conventional Mortgage Rate chart to see for yourself.
So, why are folks sitting on the sidelines? Fear.
Everyday, there is some three-alarm story about the credit crisis. Let’s talk about the facts: Only 2.04% of the loans are in foreclosure. That means 98% are doing just fine. Now, I have not been able to find the percentage of loan value that is in default, but I am betting that it is the lower balance loans, to first-time home buyers, that are in foreclosure in most instances. So, the actual balance of funds in foreclosure is likely less than 2.04%.
Just think: If you had 98% of your business/job going well, would you be in a position to howl in agony about how bad things are? I might not complain so much. However, good news never leads the news. So, take it in context. And if you need help understanding it, call me. If I don’t know the answer, I will find it out.
Now, here’s that look back to the historical 30-year mortgage rates.
Occupancy Is at Record and Near-Record Highs in
Lastly, occupancy of rental units is running at historic highs.
As I was quoted in the Denver Business Journal, many of you are starting to invest in real estate. First time investors are starting to jump into the market. With a near perfect storm of low interest rates, high demand, fewer new homes coming online, and the strong local economy,
Additionally, apartment rents are going up and there are increasingly higher rental standards.
Why? Demand.
Landlords can be picky in tight markets, not so much in soft markets. So, several first-time landlords are taking the plunge. They are getting the rents they ask and are getting the better tenants.
(To see more about rents in
In the national map below, the darker the shading of a state, the higher the vacancy rate (or lower the occupancy rate).
So, as you can even see here on this national map: It’s always a great time somewhere to invest in real estate. (I still like
| Rental Vacancy Rate (Percent) | ≤ | | < | 7.0 |
| 7.0 | ≤ | | < | 9.5 |
| 9.5 | ≤ | | < | 12.0 |
| 12.0 | ≤ | | < | 14.5 |
| 14.5 | ≤ | | ≤ | 17.0 |
So, what do you think? Do you think it’s a great time to buy and sell real estate? As you can see, now you know why I am always saying it IS a great time to buy and sell real estate.
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